SemiLEDs Corp (LEDS) 2013 Q1 法說會逐字稿

Welcome to the SemiLEDs fiscal first quarter financial results conference call, where the quarter ended November 30, 2012. This call is being webcast live on the events and presentations page of the investor section of SemiLEDs' website at www.semileds.com. This call is property of SemiLEDs, and any recording, reproduction, or transmission of this call, without the express written consent of SemiLEDs is strictly prohibited.

As a reminder, today's call is being recorded. You may listen to a webcast replay of this call by going to the investor section of SemiLEDs' website and visiting the events and presentations page. I would now like to turn the call over to Ms. Erica Mannion of Sapphire Investor Relations, investor relations for SemiLEDs.

Good morning. Thank you for joining us to discuss SemiLEDs' financial and operating results for the fiscal first quarter of 2013. With me today are Trung Doan, Chairman and Chief Executive Officer, and Timothy Lin, Interim Chief Financial Officer. Today Trung will begin with a brief overview of industry dynamics and details of the first quarter. Tim will review fiscal Q1 financial results and then open up the call for questions. VP of sales and marketing, Ilkan, will join Trung and Tim for the Q&A session on the call today.

On the call today, you may hear forward-looking statements about events and circumstances that have not yet occurred. Actual outcomes and results may differ materially from expectations contained in these statements, due to a number of risks and uncertainties. Please refer to the Company's recent SEC filings at the SEC's website at www.sec.gov for detailed discussions of the relevant risks and uncertainties. The Company undertakes no responsibility to update the information in this conference call under any circumstance.

The press release distributed today that announced the Company's results is available on the Company's website at www.semileds.com in the investor section under financial press releases. The current report on Form 8-K, furnished with respect to our press release, is available on the Company's website in the investor section under SEC filings and on the SEC's website.

You will also hear discussions of non-GAAP financial measures. Reconciliation of these non-GAAP measures to the most comparable GAAP financial measures are contained in the press release distributed today and available on the Company's website. Now, I will turn the call over to Trung Doan, Chairman and CEO. Trung, please go ahead.

Good morning, and thank you for joining our call today. Since our last call in mid-November, the LED market remains weak. However, there are pockets of demands, such as industrial and UV applications. For us, the qualification of EV and C35 products are going well. We have multiple customers qualified, and these customers have started to purchase and begun to forecast. As a result, we reported fiscal Q1 revenues of $6.2 million, an increase approximately 14% from fiscal Q4 quarter.

As many of you know, our focus has been on the components segment of our business to drive growth. Revenue attributable to the sale of our LED components for the quarter represented 39%, which was up 43% from last quarter. We will continue to manage our cost structure, keeping our expenses in line and target our resources on securing profitable business in high growth markets with good margins. We will continue to carefully invest in our portfolio of products, with a focus on products such as UV and camera flash to meet customer demands.

With the acceptance of our C35 and based on what we are hearing from customers and seeing in the market, we expect increased demand for our C35 and EV LED products. Therefore, we will expand our package capacity.

During the quarter, we are still working down our chip inventory, which has low pricing. However, our new products are commanding slightly higher pricing compared with our legacy products.

Concerning China SemiLEDs, we agreed on a restructuring plan on January 11, 2013, whereas, the China SemiLEDs' second largest shareholder will contribute an additional RMB50 million to China SemiLEDs and increase their ownership to 60.5%, diluting all other shareholders' ownership interest including ours. Under this new capital structure, our ownership interest will be approximately 16.3%. The new majority owner will also consume -- assume control of China SemiLEDs' operations.

We continue to believe China offers opportunities, and we continue to serve the China market through our SemiLEDs China branch office in Shenzhen. Concerning China's street light market, we are seeing the demand is improving, and we are working closely with our customers.

I would like to thank you all for joining our call today. I will close my comments by saying we are committed to achieve profitable growth, with a goal of reaching cash flow positive by the end of calendar 2013. Now, I will turn over the call to Tim, who will take you through our financial results.

Thank you, Trung, and thanks, everyone, for joining us today. As Erica mentioned, I am the Interim CFO. For those of you who don't know me, I have been with SemiLEDs for over two years, as part of the finance team as the Deputy Controller responsible for finance and accounting, including budgeting and forecasting.

For the first quarter of 2013, revenue was $6.2 million. This is a 8% decrease from $6.7 million in the first quarter of 2012 and an approximately 14% sequential increase. The sequential increase in total revenue was primarily due to increased sales of our LED components, such as our new C35 ceramic LED emitter, which our customers are qualifying.

Revenues attributable to the sales of our LED chips decreased 16% sequentially and represented approximately 29% of our total revenues in the quarter. Revenues attributable to the sales of our LED components increased 43% sequentially and represented approximately 39% of our revenues in the quarter. Revenues from our lighting products were flat and represented approximately 22% of our revenues -- the revenues in the quarter.

GAAP net loss attributable to SemiLEDs stockholders was $8.9 million for the quarter, compared to a loss of $7.7 million for the first quarter of 2012 and a loss of $24.6 million in the previous quarter. GAAP diluted net loss per share was $0.32.

On a non-GAAP basis, net loss attributable to SemiLEDs stockholders was $8.6 million, compared to a loss of $7.1 million for the first quarter of 2012 and a loss of $16.6 million in the previous quarter. Non-GAAP diluted net loss per share for the first quarter of 2013 was $0.31 and excludes stock-based compensation expense of $336,000 net of related taxes.

SG&A expenses were $3.7 million, which represents a $482,000 sequential decrease from the previous quarter. The sequential decrease in SG&A reflects our continued efforts to manage our cost structure. Next quarter, we expect SG&A to drop approximately to $2.6 million, while R&D is remaining flat.

Gross margin for the first quarter was negative 53%, which compares to negative 12% in Q1 2012 and negative 55% in the previous quarter.

Moving to the balance sheet, at November 30, 2012, working capital was $53.2 million. Cash and cash equivalents were $39.3 million, which compares to $47.2 million at the end of Q4 2012.

The Company also had short-term investments consisting of time deposits with initial maturities greater than three months but less than one year of $8.3 million at the end of the first quarter, which compared to $8.8 million at the end of Q4 2012. Total cash and cash equivalents and short-term investments was approximately $47.6 million.

Days sales outstanding were 59 days, as compared to 79 days for the prior quarter. Inventory days on hand were 111 days, compared to 138 days at the end of the prior quarter. Inventory was $11.7 million for the first quarter of 2013, a decrease of $1.3 million from the previous quarter.

Cash used in operations during the first quarter was $3.3 million, compared to $5.2 million in the previous quarter. We spent $1.7 million on capital expenditures in Q1. This resulted in free cash flow of negative $4.9 million. We define free cash flow as cash provided by operations less capital expenditures.

As discussed, we will resume giving guidance starting this quarter for Q2 fiscal quarter ended in February 2013. We expect revenues to be in the range of $5 million to $5.5 million and GAAP gross [loss] to continue to be negative for the quarter, as we will not fully utilize our production capacity.

GAAP net loss attributable to SemiLEDs stockholders for Q2 is expected to be $7.3 million to $7.7 million. GAAP EPS is expected to be negative $0.27 to $0.28 per diluted share. The diluted shares outstanding count is estimated at 27.5 million.

As a reminder, Q2 result is negatively impacted by Christmas, New Year, and Chinese holidays. In addition, as Trung mentioned, we are focusing on profitable growth, so this may impact near-term revenues as well. We expect to spend approximately $1 million package capacity expansion in the fiscal February quarter. This concludes our formal comments. Operator, please open up the line for questions.

Thank you. (Operator Instructions). Olga Levinzon, Barclays.

Hi. Thank you for taking my question. Now that you're providing guidance, could you tell us how much cash burn we should expect in the second quarter, based on the guidance you provided?

Olga, this is Trung. Would you please repeat your question, Olga?

Yes. Could you tell us, based on the guidance that you offered for the February quarter, what the cash burn will be?

Yes, absolutely. This is Tim speaking. Hi. For this quarter, we -- our cash flow operations is about $3.3 million, and this includes professional fees, because of the yearend activities for corporate -- for legal corporate as well as we have some yearend audit and review going on. But next quarter, we expect this number to decrease, because we don't expect that to happen. So, Q2, I expect that's going to be around $2.5 million to $3 million.

Yes. Got it. Okay.

On top of that, we also have an investment for this quarter, so --

Yes. So, the CapEx would be about $1 million?

Yes. We are looking at full guidance from -- yes.

Yes. Okay. Got it. And then, from an industry standpoint, could you let us know what you're seeing in terms of pricing, both within China and within Taiwan, for your components business and, I guess, to some extent, the chip business, although that seems to be -- you're deemphasizing that part of the similar, I guess, on the components' side. How have pricing trended through the November quarter, and what do you see for the February quarter?

So, the question from you, Olga, is what is the pricing for the components and the chips for the -- for this quarter?

Yes.

Okay. For the chip business, we expect the pricing will just follow normal decline; the same thing with the components. Actually, the new products -- actually, the price is very stable.

Yes. So, I guess normal declines -- is that kind of mid single digits, low single digits per quarter? How should we price it?

No, it's a single digit. Yes, you're correct.

So, around --

Mid single digit. Yes.

Mid single? Okay.

Yes.

Got it. And just, finally, what's the current utilization level for you guys?

Still it remained the same as last quarter -- about 30%.

Okay. Got it. Thank you.

Thank you, Olga.

Andrew Huang, Sterne Agee.

Oh, thank you. I was wondering if you could just remind us when you expect to be cash breakeven.

Yes. Andrew, this is Trung. Thank you. My goal is by the end of year to be cash flow positive.

So, that's the end of the calendar year or the end of your fiscal year?

The end of calendar year.

Okay. And if you're projecting, I guess, cash flow positive by the end of the calendar year, what kind of revenue would you need to get to to be at least breakeven?

We never -- so far, we don't talk -- the breakeven point -- what we are doing now is that, Andrew, are focused on the market that will provide a profitable market. So, for example, we focus very much on the UV market, so -- and additional market, where we make better margins. At the same time, we have also -- we are cutting our SG&A, as you see. Okay?

Yes.

So, with all of these cost containments, together with a focus on the business that make profitable, that will turn the Company become cash flow positive, and from that cash flow positive, then we go from there to become -- to be a profitable Company. That's my goal.

Okay. And for your February quarter guidance of -- revenue guidance of $5 million to $5.5 million, can you give us some color on the gross margin associated for that quarter?

Okay. Because we have -- hi, this is Ilkan, VP of Sales and Marketing. I will take this question. Because we have different product lines, we have different margins associated with different product lines, and we expect our -- these product lines to bring different gross margins for this quarter as well.

And, from our projection, we did -- there is -- we assumed that the margin -- the gross margin just improved margin rates.

Okay. I'm sorry. For the February quarter, you expect some slight improvement, relative to the November quarter?

This is right. Yes. Yes.

Okay. Thank you very much.

Thanks, Andrew.

(Operator Instructions). Ben Pang, B. Riley Caris.

Thanks for taking my question. First, on the China market. So, your China JV situation has stabilized right now, and you mentioned the street light market is improving there. Are you competing with -- against the JV now for that sort of business, or whatever improvement in that business comes through the JV?

So, Ben -- thank you, Ben. So, I just want to repeat your question is that you want to understand how we compete with the China JV?

Correct. And particularly, because you mentioned, I guess, you're seeing some improvement in street lighting, right?

Right, right. So, what happens -- we just had our agreement on restructuring on January 11, so it's very, very new, right? So we still are working on the restructuring agreement, but from what I see is that I don't think that for the next one year -- three, four quarters, I don't expect that we will be compete head-on with China SemiLEDs.

And the final agreement will be worked out, and part of that will be one of the items that I want to focus on to assure that we have a very good agreement in place to -- for the two companies work together.

Okay. And then, to follow up on some of the comments you made regarding the end markets. I think, in your opening comment, you mentioned that the lighting segment is still weak, but you are getting some forecasts from your customers for your newer products, and then, you also commented on the China street light. What areas are -- in your opening comments, in terms of the weakness, what areas are you seeing, I guess, more weakness, or can you elaborate on which areas are stronger, which ones are weaker?

So, the question is which market is stronger, and which market is weaker, as I mentioned in my initial opening. That's correct?

Yes, yes.

Okay. And so, the market is strongest right now is UV market, industrial market. Those two areas are strongest. Actually, there's still a lot of pricing pressures of the other -- in the general lighting market. And for our market, that we are focused on much more right now is, for example, the camera flash is improving, actually, because of volume increase. So, in general, just summarize, UV is the biggest improved. It is good market.

Okay.

Does that answer your question?

Yes. As you kind of look at your strategy going forward, I mean, do you see, I guess, a requirement that you're going to have to develop more, I guess, niche type products rather than general lighting? Is that how you would see your strategy for the next year?

Ben, our strategy is that if that stay in the area where there's a lot of -- people say the red C. We prefer to go to a -- the blue C. That's where we're going.

I'm not sure if I follow that answer. Can you repeat that?

In the market, that is, the LED market, we will not -- we will not try to keep market share to stay in that market.

Okay. Got that.

But we will keep on developing technology and wait for a market to become better, so we still have to be building, but we will take more reasons to absorb more loss. We will waive the charges and focus on a strategy where we'll make profitable in the business where the margin is better.

Okay, okay.

So, we focus on the bottom line.

Okay. So, final question from me. I guess, along that line of thinking, for calendar year 2013, what markets are you going to target outside of -- you mentioned you're already in the camera flash and some other market. Is there something else that you're going to target, and do you need to develop new products for that?

Yes. The UV market is really growing, and that market is -- exists for [curing] for additional -- for many markets. We going to also -- in the market of mobile applications, and those are the area that we will really aim and focus on.

But do you need to release new product --?

We are going to have a -- say again?

Do you need to -- I guess my bottom line is I'm always concerned about the qualification of time -- the timing, right -- the qualification of your new products. I'm just wondering if, 2013, you're going to see a lot of new products -- you're going to try to release a lot of new products, and we have to be concerned about the timing -- the qualification of your customers.

Well, actually, we have been in the flash -- camera flash for some time now, and we have been qualified at many companies. And for the area of UV, our products have been qualified also, and actually, lighting we also qualify a lot.

Okay.

In the industrial market, really, there's not a lot of qualification, like (inaudible). Okay? Because this is very different requirements in industrial market. All right? But (inaudible) is sometimes, more general lighting qualifications, and that issue we are going through right now, starting in some places.

Okay. Thank you very much.

Well, thank you, Ben.

We currently have no further questions in queue. We'd like to thank you for joining today's conference. Thank you for your participation.